Wednesday, October 6, 2010

Urgency Is The Missing Ingredient In India's Expressway Development

Emperor Sher Shah Suri is the father of India's roads-he built the Grand Trunk Road 450 years ago. It spanned the breadth of India from current-day Bangladesh to Pakistan. At every 6 km was a sarai or rest place for caravans. Centuries later, Adam Smith would call roads 'the greatest of all improvements', but Sher Shah Suri had figured it all out for himself. He realized that roads promoted commerce and generated revenue for the state. Medieval India's Mughal empire was dotted with kos minars (towers every 3 km) as markers of distance.

After the British vanquished the Mughals and occupied India, they re-laid the Grand Trunk Road with a slight change in alignment between Kolkata and Varanasi in central India. This 'work of great magnitude' was carried out by the Department of Public Works, which was formed by the British in 1849, after annexing Punjab.

But much of the good work came to a standstill after India's independence. There was no highway construction during the first Five-Year Plan in the 1950s. In the third, the entire addition of 179 km over five years was in Assam. In the 1960s, the primary responsibility for road building was transferred to the states. The inability to build highways and expressways was aggravated by the failure to maintain them.

Monday, September 20, 2010

To Be Great Indian Cities Cannot Rely on Evolution; They Need Intelligent Design

The Commonwealth Games should have been an opportunity to transform Delhi into a world-class city. But that remains only an aspiration, despite the huge amount of money already spent. The city's alphabet soup of agencies looking after land, municipal services, public works and electricity-DDA, MCD, PWD, DUAC, NDMC, DJB etc.-have often worked at cross purposes. There are allegations of corruption and evidence of incompetence.

Now turn to what China did with Shanghai-it was a display of national resolve seldom seen in India. While Manhattan's skyline evolved over more than a century, Shanghai's was transformed in a decade. It has over 4,000 skyscrapers, twice as many as New York. For fifteen years it has grown at an annual clip of over 9 per cent, faster than the mother country. Its per capita income has grown fourfold even as its population has more than doubled. It is set to emerge as a global financial and shipping centre-its Yang Shan deepwater port will be the world's number one.

Wednesday, September 15, 2010

Young Or Old: There's No Sure Formula For Gold

Today, propelled by Deng's 'one child' policy of the 1970s, China is growing old very fast. Two forces are at work. One is making people live longer, creating more old people in the population; but at the same time, the one-child norm is reducing the number of young people in the country. China's demographic tailwind could rapidly become a headwind. The growth of China's labour force could end by 2030, beginning a decline of the kind seen in today's slower western economies. The demographic bonus could vanish.

Such a rapid ageing is usually seen in mature, urbanized, industrialized economies that have grown over centuries. By the time these countries had grown old, they had also grown rich, like the US and Japan. BRICs estimates suggest that by 2030, China's best case would be a per capita income of $22,000 against the US's $61,000, Japan's $60,000 and Germany's $51,000.

Friday, September 10, 2010

A Nation of Cautious Consumers

Too many people, including Chinese leaders, concede that China invests too much but consumes too little. Today, it invests nearly half its GDP, but consumes 35 percent - the lowest share for any robust economy of comparable size. China's household income and consumption have fallen by 16 and 11 percentage points over the last decade. It's truly an unprecedented situation, unknown and unfathomed by mankind. But while it is low in percentage terms, consumer expenditure is sprinting closer to $2 trillion-nobody can sneeze at that number. India's economy suffers from no such conundrum. It's classically- almost boringly-balanced, with nearly 58 per cent of GDP getting consumed by ordinary Indians. There's no question that India's large consumption base gives the economy a far more stable foundation.

Monday, September 6, 2010

A Melon That Wants to Speak The Language of Cherries

China and India are neighbours thrown apart by history.

The British East India Company set up its first trading post at Surat on India's west coast in the early seventeenth century. Over the next century, the loose federation of tiny monarchies built by the Mughals crumbled into a fractious bunch of local 'kingdoms'. The Company seized this opportunity to wield political power and control the terms of trade with native Indians.

In China, one dynasty was ruling over the entire country, and several colonial powers vied to carve the 'single' melon on offer. India's situation was a mirror image of this:

Tuesday, August 31, 2010

Chinese Capitalism is State Control Dressed Up in Pin Stripes

Until 1978, private ownership of any kind was banned in China. But today, Chinese citizens can own property, businesses and shares. Thousands of state-owned companies were sold quite frenetically in the early years. Most were cornered by party officials or state governments via thinly concealed indirect structures. This created an illusion of entrepreneurship in China. Such a 'privatization' was quite unfair. Unlike genuine entrepreneurs these cadres took no risk, which devolved on taxpaying town residents. But now that these businesses were classified as 'private', they were free of all obligations towards the state. Bank credit was as easy as transferring cash from one pocket to another, since the same bunch of officials who now controlled the enterprise also ran the local bank. Minxin Pei has called this the 'decentralized predatory state', one where the exploitative actions of a market economy are layered over the excesses of state control. It's possibly the most accomplished model of 'state capitalism' in the modern world; even where the state is a minority shareholder, it often ends up controlling the board. The influence of politics is all-pervasive with half the entrepreneurs being members of the Communist Party, the so called 'red capitalists'. A survey found that 90 per cent of all the wealthy people (with personal assets of more than $14 million) were children of high-ranking party officials.

Friday, August 27, 2010

India's Thrifty Hares and the Profligate Tortoise

There is now a subdued acknowledgement of the superior quality of India's growth when compared to the quantity juggernaut unleashed by China. Both save around 40 percent of their GDP, but in India it is households that save,unlike Chinese corporations, whose accounting practices are questionable, and who are subject to market ups and downs. India's growth is also much less debt-financed. Even the usually condemned rural sector is buzzing.  Indian entrepreneurs and consumers are managing to buy and produce at much higher rates of interest, which means they are generating a much better return on investment. Also, India's share of consumption at 55 percent of GDP is much higher than that of China; which means it is not as dependent on external markets.  India higher share of services in the economy makes its growth less polluting and energy-intensive.